Financial Spread Bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 86% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Many brokers advertise that they offer low spreads – but beware! If they offer a spread “from 1 point” for example, they are offering you Variable Spreads. This means that the spread on their platform has to be as low as 1 point for only a second at any time during the trading session. It also means that they can change the spread on your trades at any time they like. Generally, we see the spreads from brokers offering variable spreads widening during peak trading times, or during times of high volatility – which is usually exactly when you want to be trading!
It is difficult to manage your trades with variable spreads. How do you determine your stop loss and profit targets if you don’t know what the spread will be when you want to exit?
Variable spreads are used by some brokers to entice you with a low headline rate, but charge much more when the market is trading. It is a hidden cost that most traders don’t understand. When a broker widens their spread and you want to exit a trade, you might be getting a sell price that is a lot lower than you were expecting!
Brian trades with a broker who advertise spreads “from” 1 point.
He trades the DE 40 index 3 times each day.
His stake size is 25 which is €25 per point.
The spread of the DE 40 index is variable “from 1 point” but on average when Brian is trading it is actually 3 points.
3 trades a day * €25 stake * 3-point spread * 250 days = €56,250
Josh trades with TD365.com
He also trades the DE 40 index 3 times each day.
His stake size is 25 which is €25 per point.
The spread of the DE 40 index is always 0.9 point at TD365.com
3 trades a day * €25 stake * 0.9 point spread * 250 days = €16,875
Brian could have a savings of €39,375 a year if he were to switch to TD365.com like Josh.
The same trades, the same markets and the same stakes, yet Josh saves himself €39,375 on his account by trading with TD365.com
